Would you give your staff a company motorbike?

Extreme couple sitting by motorcycle. Adventure and travel

Motorbikes have a clear tax advantage over company cars because they are classified as plant and machinery. This is better for both employers and employees.

Capital Allowances are restricted on cars based on CO2 emissions and employees also get taxed on the benefit in kind based on CO2.

Motorbikes being plant and machinery aren’t restricted and you could use the Annual Investment Allowance to offset the cost.

The Benefit In Kind is assessed  as 20% of the cost of the motorbike but there will also be a benefit in kind on fuel, repairs and insurance.

The company will also have to pay 13.8% Class 1A NI on the benefit in kind but that applies to most benefits including cars and motorbikes.

Would motorbikes be a viable option for your employees?


How you can update HMRC on your company car details

mann im auto

Based on HMRC Statistics approximately 1 million employees have a company car, its the 2nd most popular benefit in kind. The most popular benefit in kind is Private Medical Insurance (2.2m employees).

Often employees will change cars or start/stop having fuel for cars during a tax year and the tax on company cars can be significant, you can use this HMRC calculator to assess the the tax.


HMRC have just introduced a new Check and Update Service for Employees so that you can make sure HMRC have the correct information


You may find that it would be better for your employer to give you a loan, beneficial loans up to £10,000 aren’t a taxable benefit.


There companies like Maxxia that promote salary sacrifice schemes for cars



How do you prove ‘No Private Use’ of a company car?

Black Elegant Vintage Car

I spotted this case on the HMRC website the other day…

Elm Milk Ltd 2006 STC 792

A business bought a car for its managing director. It recorded a resolution that the car was for business use only. The managing director had another car that was used for private journeys.

The Court held that there was no reason why a car could not be made unavailable for private use by suitable contractual restraints, and that a company could enter into a binding employment contract with its sole director. Therefore, on the facts of the case, the car was available for business use only and input tax could be reclaimed.

The court held that HMRC had given too much weight to the physical constraints and insurance and should have focused on contractual constraints, the employment contract and board minutes.

The following case is also very interesting…

The ‘Shaw’ case

In the Shaw case the taxpayer bought two BMW X5 vehicles together, one for use in his farm business, the other for use privately. Mr Shaw also owned two other cars privately as well. HMRC [again] argued the case based on the social and domestic cover on the insurance policy, but Mr Shaw rebutted this by showing how the insurance policy for his combine harvester had ‘social, domestic and pleasure’ cover too! He added that the premiums for both the X5s and the harvester were lower as a result.

If there is No Private Use then there is no benefit in kind and no fuel scale charges.

So what should you do to prove there is no private use:

  1. Keep the car on the company’s business premises
  2. Keep the keys at the company’s business premises
  3. Prepare a Board Minute
  4. Makesure your contract of employment bans private use
  5. Keep a mileage log
  6. Insure the car principally for business use

Unlike Pool Cars you don’t have to prove it was available to other employees


What is a Pool Car? can you reclaim VAT? will it be tax free to drive?

Pool Cars

Pool cars must meet the following conditions:

  • used by more than one employee
  • not ordinarily used by one employee to the exclusion of others
  • not normally kept at or near employees’ homes
  • used only for business journeys – private use is only permitted if it is merely incidental to a business journey (for example, commuting home with the car to allow an early start to a business journey the next morning)

Provided all these conditions are met, you have:

  • no reporting requirements
  • no tax or NICs to pay


To back this up it would be worth having:

  1. A written ‘no private use policy’
  2. Business Only insurance
  3. A mileage log to show that there’s no private mileage

When you buy a car you generally can’t reclaim the VAT. There are some exceptions – for example, when the car is used mainly as one of the following:

  • a taxi
  • for driving instruction
  • for self-drive hire

If you lease a car for business purposes you’ll normally be able to reclaim 50 per cent of the VAT you pay. But you can reclaim 100 per cent of the VAT if the car is used as one of the following:

  • exclusively for a business purpose
  • a taxi, for driving instruction or self-drive hire


The following are VAT cases relating to Pool Cars and support the reclaiming of VAT Input Tax:

Masterguard Security Services Ltd VTD 18631

A business provided cars to the security guards that it employed. It was allowed to recover input tax on the cars because it banned the employees from using the cars for private use. It was able to show that all the employees had their own cars which they used privately.

Peter Jackson Jewellers Ltd VTD 19474

A company that had four shops bought a car. The tribunal allowed input tax to be recovered on the car. The company had evidence to show that the car was used to transport stock and that private use of the car was prohibited.


What counts as private use?

Private use that is not merely incidental to business use should in practice be ignored in deciding whether the vehicle comes under the protection of either Section 167 ITEPA 2003 (cars) or Section 168 ITEPA 2003 (vans) where such private use is:

  • small in extent and infrequent and
  • consists of either or both of:
    • use limited to meeting the immediate need for transport in an emergency where the use of the vehicle is provided on compassionate grounds
    • use for the purposes of the provision of another benefit that does not itself give rise to a tax charge where the use of the vehicle is merely incidental to the provision of that other benefit.

Small in extent and infrequent will generally be not more than 5% of the vehicle’s annual mileage on occasions that are neither regular nor protracted.

Use meeting the immediate need for transport in an emergency where the use of the vehicle is provided on compassionate grounds covers the kind of case where an employee is taken ill at work, or learns at work that a member of his or her family has been involved in an accident. It does not apply where an employee’s normal vehicle breaks down and the pool vehicle is used as a substitute.

Use for the purposes of the provision of another benefit that does not itself give rise to a tax charge where the use of the vehicle is merely incidental to the provision of that other benefit might apply in a number of different situations. One example would be the use of a pool vehicle to take employee-provided equipment, such as a table tennis table, to an employer-provided sports facility. (Subject to various conditions, employer provided recreational facilities do not give rise to a tax charge.)


Type of Car

You could have any car as a Pool Car and some businesses might decide to have a luxury car as the Pool Car befitting of the company image, but makesure you can prove that it hasn’t had more the a small (5%) amount of private use (as noted above).

So you could have a personally owned car to get to and from the office and then use the Company Pool Car during business hours.

Change of Use

If the car stops being a Pool Car and gets allocated to an employee you will need to do a self-supply charge for VAT at the time of change. Basically this means you account for the VAT on the ‘current value’ of the car at the time of change.

VAT Act 1994 Section 56 (9) – Fuel rules

(9)In any prescribed accounting period a vehicle shall not be regarded as allocated to an individual by reason of his employment if—
(a)in that period it was made available to, and actually used by, more than one of the employees of one or more employers and, in the case of each of them, it was made available to him by reason of his employment but was not in that period ordinarily used by any one of them to the exclusion of the others; and
(b)in the case of each of the employees, any private use of the vehicle made by him in that period was merely incidental to his other use of it in that period; and
(c)it was in that period not normally kept overnight on or in the vicinity of any residential premises where any of the employees was residing, except while being kept overnight on premises occupied by the person making the vehicle available to them.


Company Car or Car Allowances, which is best, there’s only one way to find out….

Let’s take an example:

VW Golf Blue Motion 1.6 TDI 105PS £18,860 Diesel CO2 99g/km


Using the HMRC calculator http://cccfcalculator.hmrc.gov.uk/CCF0.aspx

Tax Liability indicator:                                     20%                        40%

Company Car Tax (2012/2013)                    £490.20                £980.40

Company Car Fuel Tax (2012/2013)          £488.80                 £977.60

Total                                                                        £979.00                  £1,958.00

If you (the employee) pay for your private fuel you won’t have to pay tax on it.


The Employer will need to pay Class 1A National Insurance on the benefit in kind

Car benefit charge (2012/2013)                  £2,451.00

Car fuel benefit charge (2012/2013)         £2,444.00

Total                                                                         £4,895.00

Class 1A 13.8%                                                       £675.51

In addition the employer will have to fund the purchase of the car based on this link the interest will be at 4.5% http://www.volkswagen.co.uk/#/new/golf-vi/which-model/compare/483/ over 36 months that’s a cost of around £3,572.30 in total

Assuming the car is purchased rather than just hired, to offset Depreciation your employer can claim Capital Allowances based on CO2 emissions:

CO2 emissions

Capital allowances treatment of expenditure

Over 160 grams per kilometre (g/km)

Goes into the special rate pool and qualifies for writing-down allowances at the rate for the special rate pool, currently 10 per cent per annum.


160g/km or less but more than 110g/km

Goes into the main pool and qualifies for writing-down allowances at the rate for the main pool, currently 20 per cent.


110g/km or less (but note that the first-year allowance for cars in this category is due to expire in 2013)

You can claim up to 100 per cent allowance in the accounting period when they were bought, the balance (which may be nil) goes into the main pool in the next year.


So in our case the CO2 emissions are 99 g/km so 100% allowances apply, but subject to a balancing charge on disposal.

So what if your employer offered you a car allowance of £300/mth and business mileage at approved mileage rates http://www.hmrc.gov.uk/rates/travel.htm

If you were a 20% tax payer you would pay tax (20%) and NI (12%) on the extra income so net, your car allowance would be £204/mth x 12 = £2,448


Assuming you do 10,000 business miles that’s worth £375/mth x 12 = £4,500 (note that the mileage rate drops to 25p after 10,000 miles)


Less the cost of Fuel using HMRC rates http://www.hmrc.gov.uk/cars/advisory_fuel_current.htm

Is 12p per mile so the cost is £100/mth or £1,200 per year


So overall from the employees perspective, using this example (ignoring private mileage), Net Allowance £204 plus Mileage £375 less Fuel £100 = £479 per month the cost of the Blue Motion is £320.94 a month per VW Finance (excluding the £1,886 deposit), so the allowance is a good option.

The employers NI at 13.8% on the car allowance is £300 x 13.8% x 12 = £496.80 so that’s cheaper the the Class 1A of £675.51

However, the employer losses the Capital Allowances and the Diesel would be cheaper if the employer purchased it.

Other points to be aware of are:

VAT http://www.hmrc.gov.uk/vat/managing/reclaiming/motoring.htm#6

H&S http://www.hse.gov.uk/pubns/indg382.pdf

It is also possible with the right advice to create a salary sacrifice scheme relating to car leasing, advisors such as Dave Hedges at http://www.edge-tax.com are experienced in these schemes.

In conclusion, in my opinion, it all depends on how much the allowance is (Car and Fuel)  and what car the employee needs (size and mileage), the only way to work out the best solution is by running the calculations to find out.